Govt likely to hold 30-70% equity in Vodafone Idea after four years

The government could hold anything between 30-70 per cent in Vodafone Idea (VIL) based on an assumed share price of Rs 10, say analysts, thanks to an equity option offered by the government for converting the company’s dues after a four year moratorium.   While the final details are still being worked out by the Finance Ministry, the proposal comprises two options. In one, operators have been given the option to convert their interest dues on spectrum and AGR payments, after a four year moratorium, into equity to the government.   In the second, only the government has the .....
The government could hold anything between 30-70 per cent in Vodafone Idea (VIL) based on an assumed share price of Rs 10, say analysts, thanks to an equity option offered by the government for converting the company’s dues after a four year moratorium.

 

While the final details are still being worked out by the Finance Ministry, the proposal comprises two options. In one, operators have been given the option to convert their interest dues on spectrum and AGR payments, after a four year moratorium, into equity to the government.

 

In the second, only the government has the option to convert the principal amount into equity, to be paid as instalments for spectrum and AGR dues for four years after the moratorium.   

 

The move has been questioned by many analysts who say that if both options are taken, it will turn VIL into a government company. This in turn would dissuade potential strategic investors from investing in VIL which has been looking at raising Rs 25,000 crore from investors. So far, it has failed.

 

Sunil Mittal, chairman of Bharti Airtel, also said such a development would be unfortunate considering that the government has given a package which he expects will help VIL pay back its instalments on spectrum and AGR after four years without recourse to this method.

 

As far as Bharti is concerned, Mittal said only the board will decide whether it will take the equity option for paying interest which would only give the government a very small stake in the company. 

However, VIL’s shares went up today by 27.37 per cent to close at Rs 11.40. The government’s equity share in VIL could, of course, go down if its valuation goes up in the next four years.  But sources close to VIL say that the solution provides all stakeholders with the assurance that the company will continue to be a ‘going concern’ – an issue which has been raised by VIL’s auditors several times during its financial results as well as by the firm’s management.

 

“The government has ensured that it will not allow a duopoly in the private telecom sector and will back the company even if the financial challenges continue after four years. It’s a huge positive signal and will make getting an investor easier,” said a source close to VIL. J M Financial also points out the equity option gives further cushion to VIL in case of an adverse event such as tariff stagnation in the next four years. 

 

A similar message was also given by Communication and Electronics & Information Technology Minister Ashwini Vaishnaw while announcing the package. He said the government is keen to get more players in the sector to ensure competition.

 

Based on ICICI Securities data, the interest dues that VIL has to pay on AGR and spectrum payments after four years comes to Rs 9400 crore. With a market capitalization of Rs 30,000 crore, based on a share price of Rs 10, a conversion of this amount to equity will give the government a 30 per cent stake in VIL.

 

The other option which will be with the government is to convert the spectrum and AGR dues, apart from interest, and then the outgo goes up to Rs 110,200 crore. This would push the government’s equity holding to 70 per cent on a CMP of Rs 10 per share.

 

Credit Suisse agrees with ICICI Securities’ analysis, saying that the move will result in the government having a 70 per cent stake at a current market price of Rs 9.  

 

The outcome will be VIL becoming a ‘government entity’ with the government as the largest shareholder.  A senior analyst of another brokerage firm said: “No one likes a government running or interfering in a private telco. They already have BSNL/MTNL to fix. It would slow down decision-making and this was seen in companies like Tata Communications in which the government had a stake.”  

 

Brokerage house Emkay has raised concerns that a substantial dilution in equity ‘might restrict potential equity infusion from any financial or strategic investor’. After all, VIL has been seeking an infusion of Rs 25,000 crore. Given that its efforts have failed to bear fruit,  the Centre becoming the largest shareholder could just further deter anyone who might be interested in investing in it.



Dear Reader,


Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel
Key stories on business-standard.com are available to premium subscribers only.

Already a premium subscriber?

Subscribe to get an across device (Website, Mobile Web, Iphone, Ipad, and Android Phone applications) access to Premium content, Breaking News alerts, Industry Newsletters, Stock and Corporate news alerts, access to Archives and a lot more.

Read More on

VODAFONE IDEA

FINANCE MINISTRY

ADJUSTED GROSS REVENUE

COMPANIES

NEWS


Most Read

Markets

Companies

Opinion

Latest News

Todays Paper

News you can use